Rating: 
Summary: A First Review Comment
Review: This is a first review comment upon reading the intro and thumbing through each and every page to the end. Are you ready to quit work to learn Harry's methods? You might just have to in order to find the time to get though this book, as there are plenty of (disorganized) subjects that might just require a Master's Degree to understand. (And this is coming from me, an Engineer/Scientist). Again, this is a first review. Let me try to get though all the mounds of required research and reading to see if there is any truth to his writings. I know that there are plenty of easier ways to pick and choose a winning stock.
Rating: 
Summary: Everything You Need to Know
Review: This is a surprisingly complete guide for analyzing stocks. It seems to cover all the bases including ideas that I haven't seen before for evaluating a company's business plan and its management quality. It describes 10 or so tools for evaluating stocks in various areaa such as valuation, managment quality and financial health, and then tells you how to apply those tools to value and growth stocks. I was surprised at how differently the tools are applied in those instances.
Rating: 
Summary: Very Good; Some technical caveats
Review: This is a very good practical guide for two types of investors - 'value' and 'growth'. Clearly he is not a 'buy and hold' advisor as marketed by most mutual funds and brokers, which can destroy your savings. He explains their biases very clearly.
I would give him 5 stars except for a few technical deficiencies in the form of contradictions or lack of clarity (something he could elaborate on if he issues a revised edition!).
For instance, on page 58 he says that "Growth investors should focus on stocks with at least 15% forecast year-over-year EARNINGS growth."
On page 59 he says "stocks with flat (no trend) or positive trends are valid growth candidates." He never says in what sense given his earlier criteria?
On page 177 he says "Pick [growth] candidates with recent SALES growth ...[of] at least 15%.
Finally on page 198 he says "...ROE will always be higher than ROA...Most money managers I interviewed for this book said that they required minimum 15% ROE's. You have to accept ROA's of less than 7% to choose from an equal size universe...but 10% is desirable and higher is better."
None of these statements appear to be reconcilable.
Another what appears to be a contradiction is his analysis of his Return on Equity (ROE) analysis beginning on page 189. He illustrates with examples how ROE can increase simply by leveraging; i.e. substituting debt for equity. While this is a mathematical fact his observation that "...the ROE formula treats debt backward. It penalizes efficiently run firms that grow without borrowing and rewards companies that are hooked on debt."
The only reason his point has validity is in the context of his book (in this sense I have defended his remark). His book is not about valuations, for which there are many books on the market describing the standard approaches such as capitalization of earnings or discounted projected cash-flows. However one has to be careful about suggesting just what is 'backwards'. It has been explained many times in valuations books that there is no necessary equality between a company's intrinsic value (which might be derived by capitalization of projected earnings etc) and the market trading price (which is affected by current earnings releases, public sentiment, volume etc).
Nobel prize winners Modigliani and Miller (MM) demonstrated that even though leverage will boost EPS, the value of the company should not change, using arbitrage arguments, ignoring market imperfections. (For instance the fact that an investor may have a higher borrowing cost than a AAA company or risk free repo, is true but is ignored to demonstrate the fundamental principles involved. The market imperfections can be viewed as 'noise'.)
Domash's complaint that the ROE rises with the risk of greater leverage is driven from the simple fact that under a valuation exercise, there would be a higher capitalization rate (or discounting) demanded and so the value of the firm should remain unchanged. With impeccable logic MM showed that the cost of equity capital K, would rise on a linear basis to include the cost of debt arriving at a new higher cost as follows:
K* = k + (k - r)(1 - t)D/E
and so the value of the firm should not rise except for the potential tax benefit of debt financing. Whether there is tax or not, EPS will rise but should have no affect on valuation except for possible tax benefits.
Re-phrased, Domash's concern is a valid warning for investors not to view rising EPS soley from leverage to be an advantage, except for potential tax benefits. This is a valid warning in a book that is describing market valuations as opposed to a proper (intrinsic) valuation approach. However the point is not that the ROE calculation is flawed, as he intimates, but that market pricing using such techniques as he describes, as opposed to (proper) valuation can be!
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